Mutual Funds.

A Dead Issue

The Demise Of No-load Fund Group Should Be A Signal To Investors

A few weeks ago, without fanfare or news coverage, a trade group called the 100% No-Load Mutual Fund Council disbanded.

While most investors never heard of the organization, its demise is the surest sign ever that the "load versus no-load" debate is dead and that the fund business has moved on.

If only consumers could do the same.

The 100% No-Load Mutual Fund Council, in recent years, had dwindled to a diehard few small fund firms that vehemently disavowed sales charges. It had splintered off from a group that became the Mutual Fund Education Alliance, as the bigger organization's focus evolved from investing directly and without sales charges to investing smartly and with an eye toward costs.

"The issue isn't load-versus-no-load anymore," says Michelle Smith, managing director of the Mutual Fund Education Alliance. "For consumers, it's about choice and value and getting what you pay for -- no matter how you pay for it."

Yet many consumers still don't get it.

Just in the weeks since the No-Load Council folded, for example, I have a bundle of mail from people searching for financial advisers who would put them only into no-load funds, from folks interested in variable annuities that invest only in no-load funds, and from people who claim very little knowledge of investing but want a tip on the best available no-load fund.

Yet investing through an adviser means paying for services rendered; while not the exact same thing as a load, it has the same effect, reducing assets in order to pay for the guidance it took to pick a fund or build a portfolio.

Worse yet, these investors, and countless others like them, equated "no-load" with "superior performance." That's wrong. There are no studies that support the conclusion that one payment system consistently delivers better results than the other. Looking at the top of the long-term leaderboard, where you find a mix of load and no-load funds, bears this out.

Without question, sales charges are a drag on performance, but no more so than high expenses. That's why no-load funds do not dominate the leaderboards.

Other forms of sales charges -- wrap fees and asset-management fees paid to advisers who manage money in no-load funds -- also cut into absolute performance.

The 100% No-Load Council's demise is proof that the industry has focused on other issues. So should you, and when it comes to funds and sales charges, those concerns should be:

- Help versus no-help. Several studies have shown that load funds, on average, are likely to provide the same returns as no-load funds during any given time period.

That means your choice comes down to "do-it-yourself" or "hire-some-help." If you don't need help, there's little reason to ever pay a sales charge; if you need assistance, however, you will have to pay for it somehow.

It may not be called a load, but guidance -- from buying a newsletter or on-line service to paying the full freight with an adviser -- always comes at a cost. Worry less about the form that payment takes and more about whether you get your money's worth.

- The cost of ownership. No-load doesn't always mean cheap. There are plenty of funds that don't levy a sales charge, but rip off investors in the area of expense ratios. Conversely, some loaded funds carry low costs; even after paying the sales charge, they can be cheaper to own than many no-load funds if held long enough. Examine the prospectus to see what you pay to own the fund.

Sales charges, like the 100% No-Load Council, are a dead issue. Costs, however, will live forever as a more real concern.

----------

Charles A. Jaffe is mutual funds columnist at The Boston Globe. He can be reached at The Boston Globe, Box 2378, Boston, Mass. 02107-2378 or by e-mail at jaffe@globe.com.